New York Fed examines mortgage real estate investment trusts: FT

The New York Fed is examining banks' exposure to a type of mortgage-backed security that is vulnerable to a sharp rise in interest rates, the Financial Times reported, citing unnamed people familiar with the matter.

Regulators with the Fed have been probing the proliferation of mortgage real estate investment trusts, or MReits, where long-term mortgages are financed with short-term loans from dealer banks, known as a repo.

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The concern is that a rise in interest rates could prompt a selloff.

"In the spring, they came into a lot of the banks and kind of did a deep dive in that topic," one person familiar with the discussions told the FT.

After inquiries from the Fed, MReits curbed the purchases of securities and short-term borrowings because of talk of higher interest rates, the FT said.

A spokesman for the New York Fed declined to comment.

The FT said that MReits have had the attention of Fed regulators since February because of the possibility of an "overheating in the credit markets."